Given the risk-return trade-off is one of the fundamental building blocks of modern finance and risk management, we innovatively integrated two streamlines of independent researches and reexamine the impacts on the risk-return trade-off in the presence of market investor sentiment and macroeconomic announcements, individually or jointly. We found that, in line with the recent literature, the typical positive risk-return trade-off will be twisted when heightened sentiment trading days occupied the majority of the sample period. Nonetheless, the trade-off remains largely intact under macroeconomic announcement as regular measure of information disclosure from government, except for the subsample period with weighted Amex index. More interestingly, with both factors hybrid in a more general setup, the assumed positive risk-return trade-off turns out to be negative when macroeconomic announcement days confound with high-sentiment. Our results suggest that the risk-return trade-off may not be constant and consider solely the impacts from macro-announcement or investor sentiments represents only partial picture of the risk-return trade-off relationship.
Relation:
Review of Securities and Futures Markets 《證券市場發展季刊》 34卷1期 P.135-176
